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Hartford Financial to Expand Business Via Navigators Buyout

The Hartford Financial Services Group, Inc.HIG has announced its agreement to acquire the outstanding common shares of The Navigators Group, Inc. (NAVG) for worth $2.1 billion in cash. The transaction is expected to be completed in the first half of 2019, subject to closing conditions.

The shareholders of Navigators will receive $70 per share in cash upon the deal's closure. The Hartford Financial has no intention of issuing common equity in respect of the transaction.

Rationale of the Transaction

With this buyout, Hartford Financial would be able to achieve its key financial and strategic objectives such as, geographic expansion, establishment of its existence in Lloyd's, wider range of product offerings, better value proposition to agents and customers, etc. It would also enable Hartford Financial to draw synergies from Navigators' specialty lines capabilities. This in turn, would generate good returns for the company. The consolidation would combine the best of disciplined underwriting cultures, talent and commitment to innovation of both companies, which is likely to enhance the combined unity's suite of product and service offerings.

The effect of this deal on Hartford Financial's consolidated 2019 and 2020 financial results will depend on its culmination time, finalization of the purchase accounting impacts along with certain changes in Navigators' loss reserves or other balance sheet items. The company expects this acquisition to bring about an immaterial reduction in 2019 net income before the consideration of acquisition-related charges.

Meanwhile, Hartford Financial projects the deal to be accretive to net income by $30-$75 million and to core earnings by $60-$95 million. This would also include Navigators' contribution of $80-$125 million to net income and $110-$145 million to core earnings, offset by a decrease of nearly $50 million in Hartford Financial's net investment income, after tax, due to the cash used for funding the acquisition. These estimates are preliminary and will be updated depending on market conditions, business plans, financial results and other developments between now and during the wrap-up period.

A.M. Best Jumps Into Rating Action

Following the integration, credit rating giant A.M. Best has commented that the ratings of Hartford Financial and its subsidiaries remain unchanged.

Inorganic Growth Profile of the Company

Hartford Financial eyes strategic acquisitions to gain a competitive edge by diversifying as well as adding capabilities to its portfolio. Last November, the company's subsidiary Hartford Life and Accident Insurance Company, acquired Aetna's U.S. group life and disability business through a reinsurance transaction, which helped it become the second largest group and disability insurer. The buyout also fueled Hartford Financial's distribution plans and digital skills.

Share Price Movement

Shares of Hartford Financial have lost 8.2% in the past year, wider than the industry 's decline of 2.4%. The company has a Zacks Rank #3 (Hold).

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